New Zealand’s government said on Monday it would continue allowing carbon emitters to offset just half of their emissions until at least 2015 to avoid putting New Zealand firms under more financial pressure as the economy struggles to improve.
In addition, the government will allow unrestricted use of cheaper, international carbon credits in the country’s emissions trading scheme (ETS) through 2015 and cap the price of each carbon-offsetting unit at NZ$25 ($20.09).
“In these times of uncertainty, the government has opted not to pile further costs onto households and the productive sector,” Climate Change Minister Tim Groser said in a statement.
Spot prices for New Zealand units (NZUs) traded at NZ$6.95 on Monday, little changed after the announcement, but some in the market expected that the announcement could put the market under selling pressure.
“Emitters that were carefully planning to manage an obligation that was expected to increase modestly … will now seek to offload forward positions, potentially creating further downward price pressure,” said Lizzie Chambers, managing director at Carbon Match.
Following a two-month consultation period with market participants, Groser also said agricultural emissions would be kept out of the country’s ETS, the only one of its kind outside Europe, until at least 2015.
While this will enable New Zealand’s agricultural sector, a key driver of the country’s economy, to avoid paying to offset emissions produced by their livestock for now, it is seen continuing to limit the overall environmental impact of the ETS.
An official at the Climate Change Ministry told Reuters that the government would continue to allow the use of international carbon credits in the New Zealand market, after considering the possibility of restricting them earlier this year.
“We wanted a market that was exposed to the international price of carbon because that gave our industry the best opportunity of reducing its emissions at the lowest possible cost,” said a senior adviser at the ministry.
“As soon as you start messing around with access to international units, you start limiting that ability and start pushing up prices domestically, so we don’t want to do that.”
“Softening the blow”
The amendments would be in place until at least 2015, when the government will hold its next review on the ETS, he said.
New Zealand began emissions trading in July 2010 to deliver cuts in greenhouse gas emissions of between 10 and 20 percent by 2020 on 1990 levels.
Market participants said the amendments, which were widely expected by investors, suggested the government was trying to alleviate pressure on New Zealand companies in light of the sluggish global economy.
“You could argue that emitters aren’t paying full price and the government’s softening the blow for them for a lot longer,” said a trader in Auckland.
“But the government’s looked at the financial impact on the industry, and especially given what’s going on in Europe at the moment, maybe they didn’t want to be too much of an outlier.”
The amendments came a day after Australia kicked off its controversial carbon tax.
New Zealand and neighbor Australia have said they could link their trading schemes as soon as 2015, immediately after Canberra moves from a fixed carbon tax to the world’s second-largest market scheme.
